Grocers are expecting a disruption from online sales in coming years, but experts say the shift will likely profit farmers and food processors.
The transformation of the overall retail world, driven by such companies as Amazon, will affect the food industry at a time when grocers are already facing pressure to consolidate, according to experts at a recent executive forum organized by Portland State University.
While the looming changes are causing anxiety among established retailers, the creation of new sales channels is expected to loosen their grip on the market to the benefit of suppliers, experts say.
“It will reduce the traditional power that retailers have,” said Tom Furphy, CEO of the Consumer Equity Partners venture capital firm and a former vice president of Amazon’s grocery, health and beauty division.
With more ways for food producers to reach consumers, the market will be more transparent and major grocers won’t be able to exercise as much buying power as they do now, he said.
“It will allow producers to get closer to their customer,” Furphy said.
Suppliers are insulated from the turbulence in retail because they’re still ultimately making something that people need to buy, said Jack Buller, an industry consultant and former retail expert at Procter & Gamble.
Food producers with established outlets at major retailers will face more competition, but the overall increase in “distribution points” will help farmers and processors, he said. “It touches more consumers.”
“Bricks and mortar” retailers aren’t going to disappear but they must re-evaluate which items they stock and how those products are presented, said Herb Sorensen, who tracks in-store consumer behavior.
The traditional retail model requires massive investments in stores and merchandise, but the actual sales generated by those expensive displays are proportionately rather paltry, he said.
By comparison, online retailers such as Amazon don’t rely on physical presentation and move through inventory faster, Sorensen said. “Online is very capital-efficient.”
Physical stores are most vulnerable to losing sales of “routine” items that shoppers buy at regular intervals, he said. They’re also less competitive in selling the “long tail” of specialized products that don’t generate high sales volumes but collectively take up a lot of shelf space.
The future of traditional stores probably lies in providing convenience, a fun shopping experience as well as “surprise and delight” products that consumers buy on impulse, Sorensen said. “If you need it now, you need a bricks and mortar store.”
Online ordering is becoming increasingly simple for companies to set up, while wholesalers like Sysco are in a position to diversify into retail deliveries, he said. The future will likely include pick-up and delivery options for consumers.
Meanwhile, shoppers will probably grow intolerant of walking through large, overstocked stores, said Buller. “Anything that takes away pain from the shopping experience is an opportunity.”
The current environment is particularly difficult for regional grocery chains, which can’t afford to use food as a “loss leader” and engage in a “war of attrition” as the national chains do, said Scott Moses, managing director of food, drug and specialty retail at Sagent Advisors, which works on mergers and acquisitions.
The grocery industry is similar to department stores a generation ago, before national chains consumed the regional players, Moses said. “It makes for an environment where people can come in and disrupt things.”